conclusion of efsf financial assistance programme for ... · programme success: ‘clean’ exit 11...
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Conclusion of EFSF financial assistance
programme for Ireland: an overview
8 December 2013
Ireland’s success results from adequate crisis response
Three years of sound policies and international support have returned Ireland to a
sustainable and credible growth path
Financial assistance combined with reforms and fiscal restraint were effective in
correcting imbalances and repairing the banks
Irish renewed credibility is confirmed by market participants through investment growth
and low financing costs
1
Unit: %
Source: Datastream
10-year yield on Irish government bond
0
2
4
6
8
10
12
14
16
Jul.11 Oct.11 Jan.12 Apr.12 Jul.12 Oct.12 Jan.13 Apr.13 Jul.13 Oct.13
The origins of Ireland’s debt crisis
Massive housing bubble (nearly four-fold increase in prices between 1997 and
2007)
Construction boom fuelled by excessive credit expansion
External competitiveness deteriorated during credit boom
Credit crunch in the US markets precipitated the bursting of this bubble
Bursting of housing bubble and its consequences:
Sharp fall in property prices; loan losses for banks
Decline of aggregate demand and GDP, surge in unemployment
Dramatic deterioration of public finances
Yields on Irish government bonds rose to record levels since the inception of
EMU
2
Financial assistance
Irish authorities requested assistance from the EU and IMF in November 2010
Reform package agreed in December 2010 by Eurogroup/ECOFIN
Total financial assistance programme of €85 billion
3
EFSF European
Commission
(EFSM)
IMF Bilateral loans
(UK, SWE,
DK
Irish
contribution
Total
€ billion 17.7 22.5 22.5 4.8 17.5 85
Financial assistance provided by EFSF
EFSF disbursed a total of €17.7 billion from February 2011 to December 2013
Repayment of loan principal by Ireland starts in 2029, ends in 2042
Average maturity of loan tranches was initially nearly 14 years
In April 2013 the Eurogroup decided to extend the average maturity by up to 7 years
4
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042
Irish EFSF loan repayment profile
Unit: Thousands EUR
Source: ESM
Key objectives of macroeconomic adjustment programme
A financial sector strategy comprising fundamental downsizing and
reorganisation of the banking sector (including recapitalisation and
deleveraging)
A strategy to restore fiscal sustainability (consolidation through expenditure
restraint, tax system reform, generation of additional revenue)
A structural reform package to underpin growth, focusing on competitiveness
and job creation
5
Programme success: ‘clean’ exit
11 successful reviews by European Commission, ECB and IMF with no delays or
setbacks
Troika findings during 12th review (Nov. 2013) confirm achievements
Growth prospects for Ireland are strengthening
Unemployment has been declining
Situation of financial sector is improving
Long-term sovereign bonds yields down to 3.5%
Fiscal deficit targets met: from 30.4% in 2010 down to 7.4% in 2013
€20bn cash buffer covers fiscal needs for more than a year
Irish decision of a ‘clean’ exit supported by troika institutions
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7
Fiscal adjustment helped to rebuild confidence
After reaching more than 10% of GDP in 2011, the budget deficit is expected to fall to less than
5% of GDP in 2014. Moreover, during this adjustment, Ireland regained the confidence of
investors as it permanently overachieved its fiscal targets.
Government debt remains high but it is now expected to start to decline for the first time since
2007.
Unit: % of GDP
Source: Eurostat and European Commission
Note: Dashed line/area indicate forecast
-40
-30
-20
-10
0
10
20
0
25
50
75
100
125
150
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Debt Budget balance (rhs)
8
Ireland achieved a remarkable external adjustment
Ireland’s current account surplus now stands at close to 7% of GDP, one of the highest
in the euro area
Unit: % of GDP
Source: Bundesbank, Banco de Espana, Banca d’Italia and central statistical offices
-15
-10
-5
0
5
10
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Germany Spain Italy Portugal Ireland
Growth was better than in the euro area
GDP is expanding again: real GDP expanded now for two quarters in a row and leading
indicators point to a continuation of the recovery
Thanks to a solid performance of exports, Irish GDP is now above its pre-programme levels
Unit: Rebased to 100 in Q4 2010
Source: Eurostat
99
100
101
102
103
104
Q4 1
0
Q1 1
1
Q2 1
1
Q3 1
1
Q4 1
1
Q1 1
2
Q2 1
2
Q3 1
2
Q4 1
2
Q1 1
3
Q2 1
3
Q3 1
3
Euro area Ireland
-8
-6
-4
-2
0
2
4
6
8
-8
-6
-4
-2
0
2
4
6
8
2006 2007 2008 2009 2010 2011 2012 2013
Quarter on quarter Year on year
Unit: %-change
Source: Eurostat
Real GDP growth
9
The banking sector corrected significantly
Banks are in line with their
restructuring plans
Deleveraging has been
proceeding
Unit: Upper chart, bn EUR. Lower chart, %
Source: Bankscope and Central Bank of Ireland
Loans to deposit ratio
0
50
100
150
200
250
300
Dec.10 Jun.11 Dec.11 Jun.12 Dec.12 Jun.13
loans to customers Deposits from Customers
0
50
100
150
200
250
300
2008 2009 2010 2011 2012 Jun-13
Bank of Ireland Allied Irish Bank Permanent TSB
Trends in lending and deposits
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Summary: the makings of a success story
Ireland’s successful fiscal consolidation efforts have been positively assessed
by financial markets.
At the end of the programme, Ireland has been able to return to funding from
private debt markets.
The example of Ireland confirms the experience of many other countries under
IMF programmes: financial assistance combined with the implementation of
necessary policy reforms is effective and allows countries to return to economic
growth
Despite certain challenges Ireland has the potential to make a sound and lasting
economic recovery
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Next steps: Post-programme monitoring
Euro area Member States exiting financial assistance fall under post-
programme monitoring (based on EU’s Two-Pack Regulation)
Countries will remain subject to monitoring until they have paid back a minimum
of 75% of the assistance received
Post-programme missions foreseen twice a year by the European Commission
with the ECB
The Commission will assess whether corrective measures are needed
It reports to the Council (EFC), European Parliament and national parliaments
concerned
EFSF is one of Ireland's important creditors; it has to monitor repayment capacity
by monitoring its economic and budgetary developments
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Chief Spokesperson
Phone: +352 260 962 230
Mobile: +352 621 239 454
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Deputy Spokesperson
Phone: +352 260 962 235
Mobile: +352 621 136 935
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